Welcome to the home for real-time coverage of European equity markets brought to you by Reuters
stocks reporters. You can share your thoughts with Thyagaraju Adinarayan
(thyagaraju.adinarayan@thomsonreuters.com), Joice Alves (joice.alves@thomsonreuters.com) and
Julien Ponthus (julien.ponthus@thomsonreuters.com) in London and Stefano Rebaudo
(stefano.rebaudo@thomsonreuters.com) in Milan.
THE MOST HATED BEAR RALLY (1217 GMT)
The strength and speed by which markets have rebounded from their mid-March lows has taken
many investors by surprise and triggered a fair deal of frustration and disbelief given the
magnitude of the economic hit inflicted by the virus.
"Judging by the conversations I had with colleagues, everyone is feeling the same way, and
this rally in stocks must be one of the most hated of recent times", wrote AxiCorp strategist
Stephen Innes this morning.
Looking forward, Innes says he fears an "economic hard data reality check" but admits he's
also perhaps "just predisposed to looking for bad news as we start reopening".
There are plenty of analysts who believe markets are underestimating the depth economic
crisis but there are also economists who take the view that actually, the outlook isn't that
grim and justifies at least some of the rebound.
Kevin Gardiner, a strategist at Rothschild & Co Wealth Management says investors should
actually try to keep an open mind to a positive recovery scenario.
"We suspect this downturn could also be one of the shortest", in recent history if lockdowns
are gradually eased and contagion rates drop, he says.
In such a context, economic indicators should start improving in the second half of the year
and clear the way for the 2021 rebound expected by institutions such as the UK's OBR or the IMF.
In the grand scheme of things, when one models the value of stocks over an horizon of say,
30 - 50 years, the loss of profits caused by the pandemic may not account for more than a few
percentage points of value, he said.
Of course, by urging his clients not to be dogmatic about what happens next, Gardiner also
warns not to rule out unfavourable turns of events such as a second wave of infection or a new
U.S./China trade war.
(Julien Ponthus)
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HOW LONG TO GET BACK TO PEAK PROFITS?(1128 GMT)
Since the coronavirus crisis started, hundreds of companies have announced they would cancel
or delay dividend payments as profits dropped in a locked down Europe.
UBS expects European earnings to fall as much as 33% this year and we will only get back to
levels seen pre-COVID-19 in 2025.
"By end 2021 earnings will still be down 16% from 2019 levels, but we suspect we will regain
2019 levels within 5 years," says UBS.
But the good news is: dividends tend to recover more quickly than earnings, the bank adds.
(Joice Alves)
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OPENING SNAPSHOT: MISERY AND NO COMPANY (0745 GMT)
Misery loves company. Alas, it's going to be a lonely day for British traders facing a most
gloomy session while continental Europe enjoys a long weekend.
The FTSE is currently down 2.5%, a bigger fall than what futures pointed to just a few hours
ago.
Heavyweight Shell is doing its part to drag the market down, losing 6.6% after yesterday's
double digit fall. The wounds from the major's historic dividend cut have clearly not healed,
with fresh downgrades from brokers this morning.
Easyjet is among the top losers, down 6%. Rival Ryanair announced it will ground more than
99% of its flights until July.
Miners are also heavily down with metal prices under pressure.
One of the only rays of light is RBS, up 2% after the British bank beat expectations thanks
partly to a 9% gain in core income from increased trading.
As you can see below, there's no point finger pointing a particular stock or sector as the
red is well spread overall.
(Julien Ponthus)
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ON THE RADAR: NO PLANES, NO HOUSING MARKET (0630 GMT)
Labour day makes for a very thin news flow obviously but there's still interesting news and
data coming out of the UK such as a warning by mortgage lender Nationwide that Britain's housing
market is grinding to a halt as a result of the lockdown.
Another illustration of the economic pain inflicted by the pandemic is London's Heathrow
Airport, traditionally the busiest in Europe, reporting that passenger numbers were expected to
be down by around 97% in April.
Not a surprise then to read that Ryanair will ground more than 99% of its flights until
July.
After quite a grim day for European banks, Royal Bank of Scotland announcing its profits
halved in the first quarter won't change investors' sentiment towards a sector which has emerged
as one of the top losers of the coronavirus crisis.
(Julien Ponthus)
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MORNING CALL: FTSE DOWN, CONTINENTAL EUROPE OFF (0546 GMT)
It's Labour day and with continental Europe off, this morning is about the FTSE which is
seen opening down about 1.5%.
With Asian markets closed too, there's not much of a guidance for what's to come in these
early hours in London but U.S. futures are trading in the red after Wall Street's dip yesterday.
There's a lot of "sell in May and go away" in the air however with, global stocks posting
stellar gains in April in the face of an excruciatingly bad macro picture and collapsing oil
prices.
Talking about which, Brent crude and U.S. are on the rise as major producers began output
cuts to offset the slump in demand triggered by the coronavirus pandemic and data showed U.S.
crude inventories grew less than expected.
(Julien Ponthus)
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(Reporting by Danilo Masoni, Joice Alves, Julien Ponthus and Thyagaraju Adinarayan)
